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Agri-Cor sells farm equipment throughout the euro zone. The company has noticed that some customers travel to countries where equipment sells for less to obtain a better deal. What implication of adopting the euro as a common currency does this situation demonstrate?

Multiple Choice

It makes it easier to compare prices across Europe.

It makes Europe an optimal currency area.

It leads to higher prices in Europe.

It decreases competition in Europe.

It increases the profit margins of European producers.

The Single European Act was put in place in an attempt to

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Answer:

These statements are correct:

  • It makes it easier to compare prices across Europe - the Euro is the common curriency across 19 countries, but prices in those countries are far from being the same. For example, Germany is a lot more expensive than Greece (although a lot wealthier too), and Greek people can easily find out that the same product in Germany costs more euros than in Greece.
  • It makes Europe an optimal currency area - in the Eurozone, economic efficiency is now higher because resources can be allocated across different countries thanks to the fact that prices can be compared in the region.